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How to Get Rich Investing in Stocks by Riding the Electron Wave

Gold Blossoming in Colombia

Commodities / Gold & Silver Stocks Mar 31, 2012 - 07:45 AM GMT

By: The_Gold_Report


Best Financial Markets Analysis ArticleImpressed by Colombia as a country and as a setting for exciting mining and geological opportunities, Paul Harris relocated from England, by way of Chile, and hasn't looked back. In an exclusive interview with The Gold Report, the publisher of the Colombia Gold Letter offers hope for the near future.

The Gold Report: Colombia's mining and energy sectors received about $12 billion (B) in foreign direct investment (FDI) in 2011, making it the largest recipient of FDI relative to gross domestic product of any country in Latin America. Although there are excellent geological potential and dozens of junior mining companies exploring Colombia, not one of those juniors has successfully permitted a mine. Does the country risk losing some of that free-flowing capital if it doesn't start to permit mines?

Paul Harris: No. The majority of that $12B you mentioned is in the oil and coal sectors. Gold is still in its infancy. Colombia enacted a mining code in 2001, so the mine permitting provisions within that code haven't been tried and tested before, but there is apprehension about how those provisions will perform when companies do put them through their paces. A couple of projects are rapidly approaching permitting. Continental Gold Ltd.'s (CNL:TSX) Buriticá is one of those as is the AngloGold Ashanti Ltd. (AU:NYSE; ANG:JSE; AGG:ASX; AGD:LSE)/B2Gold Corp. (BTO:TSX; BGLPF:OTCQX) Gramalote joint venture.

TGR: The Colombian government has done away with Ingeominas, the state's geological service, and has replaced that body with the National Minerals Agency (NMA)—tell us about that.

PH: The Colombian government was unprepared for the level of interest it received when it opened its arms to the gold mining sector in 2005. Ingeominas was greatly underfunded, and it was overwhelmed with concession applications and there were a lot of problems and delays. The geological survey function is now with the Colombian Geological Service, and the administration function is with the NMA. One of the key tasks the NMA faces is to implement a workable and transparent concession application and administration system.

TGR: A concern is that the government plans to create what it is calling strategic reserve areas, which total about 12.1 million hectares. The government plans to conduct its own exploration work on these areas to determine their geological prospectivity and then auction these areas off much like concession blocks in oil and gas exploration. Is that a good summation of what's going on?

PH: Unfortunately it is, and many in the mining sector, from the junior explorers to the major international mining houses, do not think this is a good idea. When this idea was mentioned publicly for the first time in November 2011, a mining sector meeting was convened the following day. The product of this meeting was a five-page letter to the Minister of the economic, social, technical, geological and legal reasons of why this is a bad idea.

Auctioning may work very well for the oil and gas sectors, but it's not a good plan for the mining sector and shows the government's real lack of understanding of it. The conditions of the gold mining sector are very different. This is a big concern for explorers who, generally speaking, don't trust the exploration results of another party. An exploration company is effectively an intellectual property company. It owns its exploration model, its way of looking at geology to work out what's there. When an exploration company takes over a project, the first thing it does is verify all the data, perhaps drilling parallel holes and generating its own information. The government's setting itself up to spend time and money doing something the sector doesn't want and will ultimately tie land up unproductively for years.

TGR: You talked earlier about how the mining industry is in its nascent stage of development. But just about everybody in this space has heard about Greystar and its troubles getting its Angostura project permitted. It even changed its name last year to Eco Oro Minerals Corp. (EOM:TSX) in order to change its perception. What's the update on that story, and are other companies wary as a result or do they see Greystar's experience as the exception to the rule?

PH: It's a little bit of both. Aspects of the law that Greystar was trying to comply with weren't clearly defined. For example, the mining code said you can't build mines in páramo ecosystem areas, but it didn't define what the páramo areas were so old Greystar was trying to put a plan together against a target that hadn't been defined. And there may also have been internal issues in the way the company was advancing. But as we've seen, the company has tried to reposition itself and brought on a new board of directors and a new executive team, and it has changed its plans from trying to develop an open-pit mine to an underground mine.

TGR: Let's get to the good news. Raymond James recently launched coverage of three Colombian mining plays: Continental Gold, which you've mentioned, Batero Gold Corp. (BAT:TSX.V) and Galway Resources Ltd. (GWY:TSX.V). What does it mean to Colombia's mining sector to have North America's respected brokerages paying attention to what's happening there?

PH: It's definitely a positive. It allows the sector as a whole and the other companies here to catch some of the more advanced projects. The more information that is generated about exploration projects in Colombia, the more the message of what Colombia offers investors gets out, and the better for all companies active here. That was one of the fundamental reasons behind starting the Colombia Gold Letter. A number of companies have defined an initial resource, among them Bellhaven Copper & Gold Inc. (BHV:TSX.V), Batero, Seafield Resources Ltd. (SFF:TSX.V) and Continental Gold, and so Colombia is starting to deliver on the promise of that geological potential. Another wave of companies is also coming through and exciting people's interest by advancing very rapidly. For example, both CuOro Resources Corp. (CUA:TSX.V) and Red Eagle Mining Corp. (RD:TSX.V) listed about a year ago and both have advanced to drilling and reporting drill results within a year.

TGR: The Colombia Gold Letter index was up in January and February, almost 25% in February. What's March looking like?

PH: I think March is going to be flat. The markets in general have been relatively flat and no single stock has really had any decent growth in the last month.

TGR: And we had a bit of bad news from Batero.

PH: I've spoken to many people as to what's happened there, and the consensus seems to be that the company overpromised and underdelivered. It had talked for months about having its maiden resource out in the first quarter and at a certain number of ounces, and obviously it stuck to that. It seems to have opted to go for a high-ounce number and perhaps sacrificed on the quality of the ounces to get there. Many people think it should have postponed the release of the resource statement until it had done more infill drilling to improve the quality of the resource. The stock's been punished.

TGR: In those first two months of the year, when the index was on the rise, what was responsible for that?

PH: Following the tax-loss selling at the end of 2011, a lot of people came back into the stocks. Red Eagle Mining has been a good stock recently as has Galway Resources, Continental Gold and CuOro Resources.

TGR: In a recent edition of Colombia Gold Letter, you noted that a number of major gold mining companies had taken significant positions in companies exploring for Colombian gold. What do you believe is behind that strategy?

PH: Colombia is a very attractive destination for geological potential, and the major mining companies are aware of that. For them, partnering with juniors is a cheap way to get exposure to Colombia without having to commit to starting up in a new jurisdiction. IAMGOLD Corp. (IMG:TSX; IAG:NYSE) made headlines in October 2011 by taking positions in not one, but three Colombia juniors: a 10.2% position in Bellhaven Copper & Gold, 14% in Colombia Crest Gold Corp. (CLB:TSX.V; EAT:FSE) and 10% in Tolima Gold Corp. (TOM:TSX.V). Yamana Gold Inc. (YRI:TSX; AUY:NYSE; YAU:LSE) has a 9.9% position in Quia Resources Inc. (QIA:TSX.V). Hudbay Minerals Inc. (HBM:TSX; HBM:NYSE) took a 10.8% position in CuOro Resources and 5% in Waymar Resources Ltd. (WYM:TSX.V). Kinross Gold Corp. (K:TSX; KGC:NYSE) took a 9.9% position in Solvista Gold Corp. and most recently Teck Resources Ltd. (TCK.A:TSX;TCK:NYSE) took a stake in Colombian Mines Corp. (CMJ:TSX.V).

TGR: Let's talk about some of those companies in a little bit more detail. Bellhaven has the La Mina project, which is copper-gold porphyry.

PH: It definitely has a very good team, very knowledgeable. I interviewed Patrick Highsmith, the new CEO of Bellhaven, a month or so ago and have since visited the project. The indications there are very positive and it is immediately obvious that the project is being advanced by people with a big mining background. I think we are going to hear a lot more from Bellhaven.

TGR: Seafield Resources is the largest concession owner in the Quinchia District, and management has been talking about fast-tracking its two deposits, Miraflores and Dosquebradas, into production.

PH: I'm not sure how you can fast track two sub-1-gram-per-ton gold deposits like those into production. Many people think Seafield and Batero, which are adjacent to each other, or someone else, will end up combining their projects to develop the entire Quinchia district. Combined, that's currently between 5 and 10 million ounces, at about one gram per ton gold. At current prices, one could buy both companies and pay a good premium on the share prices and still have considerable change from US$100 million (M). There's still a lot of exploration to be done, but I think realistically there's just one mine in that district.

TGR: Red Eagle is trading at about $0.60. It has Pavo Real in Tolima Department and Santa Rosa in Antioquia Department. Which one of those is the flagship project?

PH: Santa Rosa definitely has the more advanced project. Red Eagle is already drilling there. I've visited the project. It's in a zone where there's good infrastructure, and most of the mineralization is near the surface. The company's getting good drill results and I could see that becoming a mine if it can prove up more tonnage.

TGR: Ross Beaty's Lumina Capital owns about 10% of Red Eagle. What do you make of that?

PH: When a junior gets a good partner on board, that's a sign of confidence in the project, the company and the management, so this is a very good sign for Red Eagle. A good source of advice and someone who can potentially open doors and help in the marketing and promotion of the company and the project are as important as the geology.

TGR: Continental Gold is the crown jewel of junior mining plays in Colombia. Its flagship project is Buriticá. It currently has a market cap of $830M. The management team has had success with Colossus Minerals Inc. (CSI:TSX; COLUF:OTCQX) and its Serra Pelada project in Brazil. What's next for Continental?

PH: Buriticá is an incredible high-grade project. It is the exploration project that people dream of being involved with or investing in at an early stage, because of its high grade gold veins and the fact that there are so many of them. Continental is also a great example of the value a good management team brings to a company. CEO Ari Sussman had success with Colossus Minerals and he has very good connections with key funders and banks. As he has made a lot of money for people before, he was able to fund Continental very well and get a lot of institutional support into the stock. Very sensibly, when the stock had shot up to about CA$7.50 in mid 2010, he did another financing that means the company's very well funded and, therefore, able to focus on the job at hand, which is exploring, defining a resource and discovering more gold. Many people think that Buriticá will be the first gold mine in Colombia, and the company's starting to advance with some of the early-stage work, such as putting in roads to the site. It expects to be in production as early as 2014 or 2015.

One of the incredible things about Continental Gold is that it has other highly regarded projects as well, including Berlin north of Medellín that looks like it has all the indications of potentially being another big mine. The company just has to get out there, drill it and prove up the resources.

TGR: Are there any other companies you want to talk about?

PH: Cliffmont Resources Ltd. (CMO:TSX.V) has high-grade gold veins at its San Luis project in Huila. It is in an area in Colombia where other explorers haven't gone yet, so it has a certain first-mover advantage. It seems to have picked up a good project. I'm eagerly waiting to see what results come out of the work there.

TGR: Do you have some parting thoughts for us on Colombia?

PH: The Colombia story is very much alive and kicking. It's a great place to do business. There are some very good, exciting projects here. Companies are a little unfortunate at the moment in terms of the market conditions under which they are operating. But this year there are going to be a lot more resources published, some consolidation and some shaking out of some of the weaker players.

TGR: Thank you for your insights.

Paul Harris is a mining information expert with over 12 years of experience as an analyst, journalist and researcher about the mining industry, of which he has spent nine years in Latin America, including four years in Colombia and five in Chile. Harris has written for leading industry publications and business newspapers around the world and produced reports for leading consultancy firms prior to starting the Colombia Gold Letter.

Want to read more exclusive Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Exclusive Interviews page.

1) Brian Sylvester of The Gold Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Continental Gold Ltd., B2Gold Corp., Red Eagle Mining Corp., Bellhaven Copper & Gold Inc., Seafield Resources Ltd., Colossus Minerals Inc. Streetwise Reports does not accept stock in exchange for services.
3) Paul Harris: I personally and/or my family own shares of the following companies mentioned in this interview: Continental Gold Ltd., Batero Gold Corp., Seafield Resources Ltd., Colombian Mines. I personally and/or my family am paid by the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this story.

Streetwise - The Gold Report is Copyright © 2011 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part.

The Gold Report does not render general or specific investment advice and does not endorse or recommend the business, products, services or securities of any industry or company mentioned in this report.

From time to time, Streetwise Reports LLC and its  directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

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